What are the hidden costs of outsourcing?

What are the hidden costs of outsourcing?
Natalie Toniotti
Natalie Toniotti
    5 minute read

The outsourcing market is expected to be valued at almost $315 billion by 2025. How? Businesses around the world continue to be drawn to outsourcing benefits such as reduced costs, improved staff satisfaction rates, access to expert offshore advice, business growth opportunities and the ability to maintain flexible operations. Even those who have shied away from offshore support have begun to embrace outsourcing as a way to combat unexpected economic pressures like the pandemic or rising inflation.

Businesses need to ‘work smarter, not harder’ to stay competitive, and outsourcing can help maintain a steady and efficient workforce that can rival even the most frightening resourcing dips. Exhibit A: the global labour shortage. By 2030, it’s expected that there will be a shortage of around 85 million employees globally, so it’s important to consider recruitment solutions that will ensure business survival should this become a reality.

From outsourcing talent acquisition specialists to improving recruitment processes to hiring the necessary support to manage time-consuming and repetitive tasks, outsourcing can be the helping hand businesses are looking for. It just takes partnering with the right outsourcing provider to secure a strong return on investment in the long term.

Emphasis on taking the time to choose the right offshore partner. While the pros of outsourcing are universal, making sure your third-party provider is aligned with the needs of your business and is transparent about costs is key to a successful partnership.

In this blog, we discuss the hidden costs of outsourcing that businesses should look out for to avoid diminishing returns.

What are the hidden costs of outsourcing?

Startup costs

Most outsourcing models will take care of the onboarding and infrastructure setup associated with hiring new offshore employees. However, you will still need to invest the time, energy and sometimes additional financial resources to train and get your outsourced employee up to speed with their role and how your business does things. While they have the necessary skillsets as outlined in their job description, they now need to understand business processes, policies and procedures. Depending on the level of complexity and the training required, this could take weeks or even months to do. This startup cost is related to time and it’s important to not be disheartened as the financial rewards down the track will far outweigh the cost of having to train up a valuable and dedicated new team member.

Planning for the unexpected

Imagine your business is impacted by unforeseen circumstances like a recession. Not only do you now need to juggle onshore operational changes, but also how these events will affect your outsourced teams and providers. When deciding which outsource provider to partner with, make sure to bring up how they’ve previously handled unexpected events like power outages or what their contingency plans are for natural disasters.

Poor performance standards

When you find a quality offshore provider, you can expect great things. Locations like the Philippines, which has long been viewed as one of the top outsourcing destinations in the world, will still have providers that won’t live up to the standard of services promised. Like with any sales deal, sometimes you get oversold and the provider will underdeliver. The same can apply to outsourcing ventures. To avoid having this happen to you, do your research, seek recommendations, ask the important questions and set clear KPIs. If you happen to get into an engagement that isn’t delivering, don’t wait around just to ‘hope things get better.’ Take action sooner rather than later and be proactive to avoid further quality-related costs down the line.

Staff morale concerns

A huge concern for businesses looking to engage in outsourcing is the cost of diminished staff satisfaction for your onshore employees. Lower staff satisfaction often leads to higher staff turnover and employers believe giving tasks to offshore employees could be a catalyst. This stigma is widely misled. Outsourcing can help you to identify roles and tasks that would be best suited to send to an offshore employee. That way, your local team can focus on what they do best and what motivates them, improving job satisfaction for employees in the long run. Hiring offshore team members can help relieve any unnecessary stress felt by your local team through the provision of additional support. Clearly outlining why and how offshore teams can help benefit their day-to-day working lives by introducing them to their offshore counterparts can ease this concern and form a sense of camaraderie.

Stay relevant and don’t become complacent

Don’t assume once you’re in the outsourcing game it’s set and forget. Like any investment, things change and your outsourcing strategies need to adapt too. Markets evolve and it’s important to regularly review your outsourcing contracts to ensure you are receiving the best return on investment. We’re not saying the in-depth analysis leads to a ‘keep jobs offshore or bring back onshore’ conclusion but more so you can understand where to maximise your outsourcing potential and get the most out of your resources.

Technology upgrades

Outsourcing requires organisations to strongly rely on cloud-related technology to keep in touch with their offshore counterparts. From sharing files to maintaining confidentiality through data security protocols, outsourcing can often shine a spotlight on areas of a business that require digital transformation for this investment to work. This might mean updating software or hardware to support an outsourced business model.

Why outsource?

While the above may have you questioning why you might bother outsourcing at all, it’s largely a ‘benefits outweigh the cost’ situation. Businesses are constantly looking for ways to improve efficiencies and deliver cost savings. Whether your business is struggling to scale and grow, or wages are increasing due to economic changes, business leaders should seek to invest in strategies that will enable sustainable growth.

Outsourcing providers generally operate from within developing economies. Outsourcing provides a number of benefits to businesses looking to outsource their repetitive, time-consuming and transactional business processes.

Airplane 3 Airplace 6

Business growth tips delivered to your inbox weekly

Boost your knowledge about offshoring, register for our education series here.